China's Yuan Hits Highest in 3 Years... Below 6.4 Yuan per Dollar

Recovery of Central Gyeonggi Economy, Inflow of Foreign Investment, and Weakening of the Dollar

[Photo by Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] The Chinese yuan is showing strength, with its value against the dollar reaching the highest level in three years.

According to the Wall Street Journal (WSJ), on the 25th (local time), the offshore foreign exchange market saw the dollar-yuan exchange rate fall below 6.4 yuan per dollar. The previous day, in the Hong Kong offshore market, the dollar-yuan rate dropped to as low as 6.3880 yuan during trading hours. This is the lowest level since June 2018, marking the highest value of the yuan against the dollar in three years.

The official exchange rate announced by the People's Bank of China, the country's central bank, on the 26th was also 6.4099 yuan per dollar, the lowest level since 2018.

WSJ explained that the yuan's strength is due to China's rapid economic recovery from the COVID-19 pandemic. The inflow of foreign investment seeking high returns and the weakness of the dollar are also factors contributing to the yuan's appreciation.

On the 25th, as the Shanghai Composite Index surged by over 2%, external funds flowing in through the Hong Kong-Mainland Stock Connect system reached 21.7 billion yuan (approximately 3.8 trillion won), setting a new record.

There is also speculation that China may tolerate yuan appreciation to curb inflation risks caused by rising commodity prices, which is fueling the yuan's strength. In this regard, the People's Bank of China has stated that maintaining a stable yuan exchange rate is important.

Opinions are divided on whether the yuan will continue to strengthen further.

Chinese economic media Caixin said, "The market regards 6.4 yuan per dollar as an important threshold," adding, "Since some foreign exchange futures and options products are set with 6.4 yuan per dollar as a benchmark, once the 6.4 level is broken, a relatively large number of futures and options products will be liquidated, which could further boost the yuan's value in the short term."

On the other hand, Zhou Hao, an economist at Deutsche Bank, pointed out, "The dollar-yuan exchange rate staying below 6.4 yuan will not last very long," noting, "(China's) exports could decline very quickly, and the current trend of the dollar is not necessarily in a fixed direction."